Sharq Institute of Higher
Education
Accounting Information System (AIS)
CHAPTER 2
Responsibility Accounting System
Lecturer: Saeed Agha(Ahmadzai)
Contact: 0749187350
Email: Saeedahmadzai009@[Link]
YouTube: Saeed Agha Ahmadzai
Learning Objectives
• To discover methods of providing Top-Down and
Bottom-Up information Flows.
• To learn about the information systems that
produce reports for internal use.
• To understand how account codes are used to
produce accounting reports
Information flow
• . . .The flow of information occurs in both in manual and
computer based system, In manual system the flow of
information occurs as following:-
• First transaction recorded in journal.
• The entries are then posted to ledger and it further continue
until the reports are prepared.
Continuous
. . . While in computer based system the
information flows occurs between the computer
files, which are used in place of journal, and
l
ledger. This information flow can be explained by
the following figures…
Types of information Flows
• The information flows are divided into the following two
categories which are the following
• Top Down Information Flow
• Bottom Up Information Flow
TOP DOWN INFORMATION
FLOW
• . . . An organization budgeting system is good example of top
down information flow, because the management prepare
and establishes the budget for all sectors of organization. Top
management develop policies to meet its goals and
communicated to different managers at different levels for
perform their duties.
• An effective budgeting system is designed to work within the
organization’s structure with clear policy statements.
Organizational Structure
• . . . For good information flow system the organization
should have the following characteristics:-
• The structure must identify and distinguish each of its
segments.
• Clearly authority and responsibility must be assigned.
• Each head of segment should report to one higher
authority.
• And clearly define subordinates for each segment and
relations of all employees of the organization.
Policy statement
• . . . The policy statement provides guidelines
for the employees how to carry out a specific
duty in their job description. The policy
statement should be comprehensive and
enforceable. Clearly mentioned the duties and
responsibility and code of conduct in
organization.
Bottom Up Information
Flow
• . . . When events occurs at lower level
and it reported to high level authorities is
called bottom up information flows. This
flow of information is also called
responsibility reporting system.
There are four main types of responsibility
centers
Cost Centers
Profit Centers
Investment Centers
Revenue center
Responsibility Centers
Cost Center Revenue Center
Segment has
Segment
control over the
is responsible
incurrence of
for the revenue of a
costs.
unit.
The Paint Department The Reservations
in an automobile plant. Department of an airline.
Responsibility Centers
Profit Center Investment Center
Segment has control
Segment has control
over both costs and
revenues. over profits and
invested capital.
Company-owned A division of a
restaurant in a fast-food large corporation.
DATA ACCUMULATION
. . . The collection of data is called data accumulation.
. . . When the data is collected from various
organizational units it is required to categorized it for
this purpose transaction encoding scheme are used.
code
First let's define what a code is
. A code is numbers, letters, or a combination of letters
and numbers (alphanumeric) that is used to represent,
identify, and organize something. Often, you will see
the something referred to as an object.
Codes
The code itself, the numbers, letters, or combination of
letters and numbers is usually meaningless. The code
gets its meaning when it is assigned or related to
something (object) such as a document (invoice number),
Codes
There are three types of codes which are used to
categorize the collected data these codes are the
following.
1 Responsibility Codes
2 Account Codes
3 Budget Codes
Responsibility Codes
• . . . The responsibility center is a numeric codes assigned by
the organization to its organizational subunits (responsibility
center).
• For example Factory No 1 Code is 5100, reports to Vice
President of Manufacturing Code 5000. furthermore, the
manager of Production Dept. B with a code of 5120, reports
to the Head of factory no 1 Code 5100…
Account Codes
A code, which represents an account uniquely, is called
account codes.
An account code is a six-digit number used to classify
transactions in IFIS (Integrated Financial Information
System)
Operating accounts
Operating or operating ledger accounts, include
revenue accounts, expenditure accounts, and transfer
accounts.
Budget Codes
• The budget code is a code which represents the budget
amount allocated for different activities in the organization.
Each budget code represents the amount allocated to a
specific activity in the organization.
BUDGET HEAD BUDGET CODE
Computer equipments A-6112
Advertising and A-7112
promotion
Salaries A-2011
Stationary and B-2002
Printing
Machinery and Plants C-3215
Coding Structure
We need to used different types of coding schemes to keep the
record of accounts in best way. The method used to make the
different codes is called a coding structure. Different types of codes
are as following:-
Sequential code
Consecutive numbers are assigned to uniquely identify something. As
related to accounting, this something is normally documents.
The consecutive numbers are assigned to documents such as checks,
invoices, purchase orders, receiving reports, customer payments, etc.
in order to control and identify specific documents.
Pre printed forms such as checks or customer invoices with the
numbers 0001 thru 9999 assigned are examples of using a sequential
coding system
Block codes
Block codes used with numbers is one of the most
frequent coding methods used when setting up a manual
or computerized charts of accounts. Let's take a look at a
simple example to help clarify what we're talking about.
Continue..
Example of a Simple Account Numbering System Using Block Coding
with Numbers
Eight Blocks of Numbers have been used to assign account groups
based on the types of accounts in the following example.
Type of Account Block Assigned
Assets 100-199
Liabilities 200-299
Owner's Equity 300-399
Revenues 400-499
Costs of Goods
500-599
Sold
Expenses 600-699
Other Revenue 700-799
Other Expenses 800-899
Continue..
Looking at our sample table above what does it tell us ?
•The blocks or ranges identify the different major types of accounts -
assets, liabilities, owner's equity, revenue, and costs/expenses.
The first block of numbers 1000-1999 is a range of numbers used
to create and identify the different types of asset accounts.
The second block of numbers 2000-2999 is a range of numbers
used to create and identify the different types of liability accounts.
The third block of numbers 3000-3999 is a range of numbers used
to create and identify the different types of owner's equity accounts.
The fourth block of numbers 4000-4999 is a range of numbers
used to create and identify the different types of revenue accounts.
The fifth block of numbers 5000-5999 is a range of numbers used
to create and identify the different types of cost of goods
sold accounts
Mnemonic
Mnemonic means something that aids the memory. Mnemonic coding
systems use letters and/or numbers as an aid for identifying and
remembering something. If you recall, I mentioned earlier that most
codes are meaningless by themselves. This is an exception. This is
a code that conveys meaning by itself. Abbreviations that we commonly
use is an excellent example of using mnemonic codes.
A possible use of mnemonic codes used with a chart of accounts
would be using codes similar to the following for identifying and
assigning the type of accounts.
Continue..
Mnemonic Code Type Account
A Assets
L Liabilities
O Owner's Equity
R Revenue
C Cost of Goods Sold
E Expenses
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